12/04/2006 @ 2:42PM

Founders Lead Station Casinos Bid

Private equity firms think casinos are a good bet. Station Casinos said on Monday that it received a $4.7 billion management-led buyout offer, partly backed by a private-equity firm.

Analysts predicted that the deal would quickly be consummated and that the company, while recently experiencing some difficulties, will ultimately profit from a healthy Sin City economy.

The $82 per share bid comes from Fertitta Colony Partners, a company formed by
Station Casinos
Chairman Frank Fertitta III, Station Vice Chairman Lorenzo Fertitta and Colony Capital Acquisitions, an affiliate of Colony Capital, which owns several Las Vegas and Atlantic City casinos.

Shares of Station ballooned more than 18%, or $12.90, to match the $82 offer price.

Since
Harrahs Entertainment
, the countrys largest casino operator, received a $15.5 billion takeover offer from Apollo Management and Texas Pacific Group, other casinos have been under increasing scrutiny for a similar offer, says BMO Capital Markets Research Equity Analyst Jeffrey Logsdon. Not least of these was Harrahs’ itself, which last week was rumored to be the subject of a second offer. (See “Potential New Bid For Harrah’s“)

Logsdon says that Station, which predominantly caters to a local Las Vegas clientele, has suffered in the last few quarters as residents grew wary of gambling away their money. Business has been less robust, Logsdon said. Spending has been down to mid-single digits.

Indeed, the company reported on Nov. 2 that its third-quarter profit slumped, falling to $19.2 million, or 34 cents per share, less than half the $39 million, or 56 cents per share, it earned a year earlier.

Still, Logdsdon considers the company healthy and boasting a bright future because, in part, the market it serves looks strong. He noted that around 6,000 people continue to move to Las Vegas every month. Unemployment in the city, he says, remains under 4%. There is $25 billion worth of construction set to occur on the Strip in just the next 4 years.

Local business will be healthy, Logdson says.

Robert Lafleur, an equity analyst at Susquehanna Financial Group Research, agreed. He noted that the casino company has suffered recently as locals steered clear of the slots. People in Vegas have not been as free spending as they saw the economy soften, he said.

But Lafleur likewise believed that the overall economy looked strong. The trends are positive. There is no chronic problem.

The analysts said proposed deal will likely go through. Lafleur noted that financing is already in place and that, in his opinion, the deal could get done in just six months. The family wont sell the company to anybody but themselves, he says. They built this company. They like running it. They will just now find fewer headaches by running it privately.